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FCA publishes proposed guidance on new anti-greenwashing rule

21 Mar 2024

The Financial Conduct Authority’s (FCA) consultation on the new anti-greenwashing rule guidance, closed on 26 January 2024. This guidance will apply to all FCA authorised firms who make sustainability-related claims about their products and services.

It supplements the current “anti-greenwashing rule”, which requires firms to ensure that any reference to the sustainability characteristics of a product or service is consistent, clear, fair and not misleading.

The guidance acts as an aid to the implementation of the current anti-greenwashing rule, and provides four key principles that any sustainability claim must consider. The guidance also provides some practical examples explaining the implementation of these principles.

The four principles require that sustainability-related claims are:

Correct and capable of being substantiated

The guidance applies to all communications about products and services and not just those used for marketing and/or sent to retail investors. Furthermore, the guidance states that sustainability-related references can be present in, but are not limited to, statements, assertions, strategies, targets, policies, information and images. This demonstrates how broad the reach of this guidance can be, and aesthetically pleasing images which may initially seem inconsequential, may be construed as making a sustainability reference.

Firms should be able to support claims with robust, relevant and credible evidence. This puts a lot of pressure on firms to keep a record, not just of claims they are making, but of all evidence that supports those claims. Firms must ensure that evidence always remains current, otherwise the claims need to be withdrawn. This also applies to approvers of financial promotions. Furthermore, the guidance states that if reference of evidence is given, then it is helpful that that evidence is made available in a public space.

Clear and presented in a way that can be understood

Claims should take into consideration technical language so that information is transparent and easy to understand. The guidance also highlights that visual presentations could create an overall impression. Though claims in themselves may be correct, the visual presentation may create a different impression.

Complete and should not omit or hide important information and should consider the full lifecycle of the product or service

Sustainability-related claims should not favour highlighting positive impacts to hide or omit negative impacts. The information presented should always be balanced.

Furthermore, claims need to consider the whole lifecycle of a product or service. If only a certain part of the lifecycle is being addressed, then this needs to be clearly explained. Information about the firm itself may also impact the decision about a product. Thus, the ‘representative picture’ also needs to be fair, clear and not misleading.

In summary, there should not be any omission, nor any ‘cherry picking’ of information.

Fair and meaningful in relation to any comparisons to other products or services

Comparisons of claims should be equitable and presented in the correct context. The guidance provides an example of a firm which claims that by purchasing their investment bond, investors will ‘reduce emissions’ more than through purchasing any other investment bonds on the market. This comparison only refers to Scope 1 emissions (as opposed to all emissions: Scope 1, 2 and 3) and is based on a limited sample at a particular date in time. However, this additional relevant information is not provided. Thus, the claim will be considered unfair and amount to greenwashing.

Action required

The proposed guidance increases responsibility and accountability, and consequently, firms should always:

  • Know what sustainability claims they have made
  • Ensure that they always have evidence to back-up those claims
  • Ensure each and every one of those claims meet the four principles

Even those firms that are not in-scope of the guidance, may find it useful to consider when making sustainability claims.

The FCA intends to publish the finalised guidance soon, with it coming into force on 31 May 2024.

How IQ-EQ can help

To aid compliance with the new FCA proposed guidance, we’ve created pragmatic practical supporting materials to help our clients prepare for implementation, including tailored Sustainability Disclosure Requirements (SDR) training presentations and anti-greenwashing assessments of client communications.

If you’d like to discuss the anti-greenwashing rule, or find out more about the support available from IQ-EQ’s expert compliance consulting and technical regulatory reporting teams, please get in touch.

Working with IQ-EQ has been seamless – you and your team understand our business, advise us appropriately, and handle your side of our collective partnership so that we can focus on making good investment decisions. Evan Gibson SVP, Merchants Capital

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